Goldman Sachs 2015 Annual Report Download - page 79

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Balance Sheet and Funding Sources
Balance Sheet Management
One of our most important risk management disciplines is
our ability to manage the size and composition of our
balance sheet. While our asset base changes due to client
activity, market fluctuations and business opportunities,
the size and composition of our balance sheet reflect (i) our
overall risk tolerance, (ii) our ability to access stable
funding sources and (iii) the amount of equity capital we
hold. See “Equity Capital Management and Regulatory
Capital — Equity Capital Management” for information
about our equity capital management process.
Although our balance sheet fluctuates on a day-to-day
basis, our total assets at quarter-end and year-end dates are
generally not materially different from those occurring
within our reporting periods.
In order to ensure appropriate risk management, we seek to
maintain a liquid balance sheet and have processes in place
to dynamically manage our assets and liabilities which
include (i) quarterly planning, (ii) business-specific limits,
(iii) monitoring of key metrics and (iv) scenario analyses.
Quarterly Planning. We prepare a quarterly balance sheet
plan that combines our projected total assets and
composition of assets with our expected funding sources for
the upcoming quarter. The objectives of this quarterly
planning process are:
‰To develop our near-term balance sheet projections,
taking into account the general state of the financial
markets and expected business activity levels, as well as
current regulatory requirements;
‰To determine the target amount, tenor and type of
funding to raise, based on our projected assets and
forecasted maturities; and
‰To allow business risk managers and managers from our
independent control and support functions to objectively
evaluate balance sheet limit requests from business
managers in the context of the firm’s overall balance sheet
constraints, including the firm’s liability profile and
equity capital levels, and key metrics. Limits are typically
set at levels that will be periodically exceeded, rather than
at levels which reflect our maximum risk appetite.
To prepare our quarterly balance sheet plan, business risk
managers and managers from our independent control and
support functions meet with business managers to review
current and prior period information and discuss
expectations for the upcoming quarter. The specific
information reviewed includes asset and liability size and
composition, aged inventory, limit utilization, risk and
performance measures, and capital usage.
Our consolidated quarterly plan, including our balance
sheet plans by business, funding projections, and projected
key metrics, is reviewed and approved by the Firmwide
Finance Committee. See “Overview and Structure of Risk
Management” for an overview of our risk management
structure.
Business-Specific Limits. The Firmwide Finance
Committee sets asset and liability limits for each business
and aged inventory limits for certain financial instruments
as a disincentive to hold inventory over longer periods of
time. These limits are set at levels which are close to actual
operating levels in order to ensure prompt escalation and
discussion among business managers and managers in our
independent control and support functions on a routine
basis. The Firmwide Finance Committee reviews and
approves balance sheet limits on a quarterly basis and may
also approve changes in limits on an ad hoc basis in
response to changing business needs or market conditions.
Requests for changes in limits are evaluated after giving
consideration to their impact on key firm metrics.
Compliance with limits is monitored on a daily basis by
business risk managers, as well as managers in our
independent control and support functions.
Monitoring of Key Metrics. We monitor key balance
sheet metrics daily both by business and on a consolidated
basis, including asset and liability size and composition,
aged inventory, limit utilization and risk measures. We
allocate assets to businesses and review and analyze
movements resulting from new business activity as well as
market fluctuations.
Goldman Sachs 2015 Form 10-K 67